Tuesday, May 01, 2007

Management and total nonsense

It is a book by Stanford Business School Professors Jeffrey Pfeffer and Robert Sutton arguing for evidence-based management.

Evidence-based management advocates making decisions based on the latest and best knowledge of what actually works. Yes, you might think this would not be controversial, but, sadly, it is in the world of business.

Early on, the authors state their position:

We believe that managers are seduced by far too many half-truths: ideas that are partly right but also partly wrong and that damage careers and companies over and over again.

Yet managers routinely ignore or reject solid evidence that these truisms are flawed.

Why do managers succumb to these half-truths? In part, it is that they get bad advice.

The advice managers get from the vast and ever-expanding supply of business books, articles, gurus, and consultants is remarkably inconsistent.

Consider the following clashing recommendations, drawn directly from popular business books: Hire a charismatic CEO; hire a modest CEO. Embrace complexity theory; strive for simplicity. Become ... strategy-focused; ... strategic planning ... is of little value.

Consultants and others who sell ideas and techniques are always rewarded for getting work, only sometimes rewarded for doing good work, and hardly ever rewarded for whether their advice actually enhances performance ... If a client company's problems are only partially solved, that leads to more work for the consulting firm.

The senior executive of a human resources consulting firm, for example, told us that because pay-for-performance programs almost never work that well, you usually get asked back again and again to repair the programs your clients bought from you.

But, it is not all just bad advice.

When the late Peter Drucker was asked why managers fall for bad advice and fail to use sound evidence, he didn't mince words: "Thinking is very hard work. And management fashions are a wonderful substitute for thinking."

There is a lot to like in the book, but I found this tidbit on building a culture that promotes learning to be particularly good:

A series of studies by Columbia University's Carol Dweck shows .... that when people believe they are born with natural and unchangeable smarts ... [they] learn less over time. They don't bother to keep learning new things.

People who believe that intelligence is malleable keep getting smarter and more skilled ... and are willing to do new things.

These findings also mean that if you believe that only 10 percent or 20 percent of your people can ever be top performers, and use forced rankings to communicate such expectations in your company, then only those anointed few will probably achieve superior performance.

[Managers should] treat talent as something almost everyone can earn, not that just a few people own.

Having people who know the limits of their knowledge, who ask for help when they need it, and are tenacious about teaching and helping colleagues is probably more important for making constant improvements in an organization.

The authors are no fans of forced rank or pay-for-performance, and they spend a fair amount of time explaining why:

A renowned (but declining) high-technology firm [used] a forced-ranking system ... [where] managers were required to rank 20 percent of employees as A players, 70 percent as Bs, and 10 percent as Cs ... They gave the lion's share of rewards to As, modest rewards to Bs, and fired the Cs.

But in an anonymous poll, the firm's top 100 or so executives were asked which company practices made it difficult to turn knowledge into action. The stacking system was voted the worst culprit.

A survey of more than 200 human resource professionals ... reported that forced ranking resulted in lower productivity, inequity and skepticism, negative effects on employee engagement, reduced collaboration, and damage to moral and mistrust in leadership.

People are more likely to ... see themselves more positively than others see them [and] believe they are above average or not recognize their lack of competence .... People who receive a smaller reward than they expect routinely resent the organization.

A 2004 survey ... of 350 companies showed that "83 percent of organizations believe their pay-for-performance programs are only somewhat successful or not successful at accomplishing their goals.

Similarly, an experiment at HP with "13 different pay programs" in the 1990s found that the "local managers who enthusiastically initiated these pay-for-performance programs ran into difficulties in implementation and maintenance" and soon wanted to abandon them. The experiments "did find that pay motivated performance" but that "the costs weren't worth the benefits" in terms of the "lost trust", "damaged employee commitment", "shift of focus away from the work and toward pay", "infighting about pay", and overhead of managing the programs.

Though HP learned the right lesson from their experiment at the time, this story does not have a happy ending. Years later, Carla Fiorina "forced the system throughout HP, disregarding the evidence gathered by the company itself." The authors' judgement is scathing: "CEO whim, belief, ego, and ideology, rather than evidence, direct what too many companies do and how they do it."

And on this note, Pfeffer and Sutton write that the "belief that leaders ought to be in control is a dangerous half-truth" because "leaders make mistakes -- all people do" and, with "few or no checks or balances", there are no way to correct the inevitable errors.

It's a good book, more grounded than most of the business fluff around these days, and worth reading if you are a manager or play one during the day.

Also, if you haven't read it already, I would strongly recommend Pfeffer's earlier book, "The Human Equation", which I briefly discussed in an old April 2004 post. The older book is tighter and more focused on management and HR practices than the newer book; the newer book is more of an assault on and lamentation of the state of management.

5 comments:

Blake
said...

This is a great write-up - I'll order the book today. You may have already read it, but if not, you might also enjoy "Why We Do What We Do", by Edward Deci & Richard Flaste. Fun, counter-intuitive case studies around motivation dynamics.

When I first read the term "evidence-based management" I guessed that this book would be a diatribe against "gut-feeling management," i.e., personnel decisions that are made in the absence of facts or data. It seems that this is at least as rampant a problem as management that follows a given protocol, which seems to be what the book is in fact railing against.

Though it's easy to agree that choosing protocol in lieu of thinking is usually a path to discontent (or disaster) within one's employee base, I feel that what these protocol-based systems are trying to get at is a means by which to promote managers making concrete decisions about who did good and who did bad. If managers made these decisions with an empirical backdrop, I'd say the protocol is worth the cost, compared to "gut-feeling management."